Netflix under pressure to retain customers won during lockdown
US streaming giant Netflix is on track to break the 200 million subscriber mark this year and growth in users could beat current expectations assuming long-run trends play out through the rest of 2020.
Figures announced on 16 July showed that Netflix added more paid subscribers over the past six months than ever before in its history. More than 10 million net people signed up to the films and TV shows service in the three months to 30 June, comfortably beating forecasts which called for 7.5 million net new additions in the second quarter.
Netflix has been one of the most obvious winners through the Covid-19 lockdown, with millions of people streaming films and TV shows while forced to stay home. Nearly 16 million new subscribers were added in the first quarter, its most successful three months ever.
That brings Netflix’s global paid memberships to 193 million, up 26 million since the beginning of 2020. To add some perspective, Netflix added just 12 million subscribers in the first half of 2019 and less than 28 million in the entire year.
Revenue and earnings per share (EPS) during the latest quarter came in at $6.15 billion and $1.59 respectively, beating market expectations of $6.08 billion income, but missing EPS estimates pitched at $1.83. But subscription growth is what matters to the market most, and investors were left concerned about weak guidance.
The company said it expects to add 2.5 million subscribers by the end of September, which would mark the lowest level of growth since 2016. The news spooked investors and triggered a 6.5% correction in the share price to $492.99.
Long-run trends suggest Netflix could see stronger subscriber growth than feared. Since 2012 Netflix has seen its biggest growth in new sign-ups during the first and fourth quarters, with the second quarter consistently its weakest.
Over the past three years Netflix has added a combined 17.6 million net subscribers during its third quarter, peaking at 6.77 million last year. In two of those three years, the fourth quarter has proved to be its strongest for growth.
A continuation of lockdown restrictions amid localised flare-ups would be positive for Netflix, acting as a catalyst for more people to try its service. However, there is also the risk that recent subscribers cancel their plans once life returns to normal, suggesting that Netflix could have a large customer churn problem going into 2021.